The price of gasoline: profit is not a big part
HAMPTON ROADS, Va. (WAVY) — Despite what may seem like out-of-control gas prices lately, experts say the people retailing it aren’t getting rich.
When you consider the pipeline needed to get that fuel from the well into your vehicle, there’s little room for profit.
It is important to know the four main components of what we pay at the pump. Robert McNab, professor of economics at Old Dominion University, says we start with the biggest chunk: the price of crude oil.
“We have to get the oil out of the ground in the United States, Canada or wherever in the world,” he said. The cost of rough represents approximately 54% of the price.
“So when the price of crude jumps, it’s no surprise that the price at the pump goes up,” McNab said.
Then federal and state taxes are about 16% of the price. The combination of the two equals approximately 45 cents, of which 26 cents is state tax.
“That’s why you see lawmakers in Richmond discussing whether or not to have a gas tax exemption, because that would probably lower prices at the pump by 20 to 25 cents,” McNab said. .
The third would be distribution and marketing, which represents an additional 16%.
“We have the crude oil, now we have to get it somewhere to refine it,” McNab explained.
Finally, refining and profit represent the last 14%. So, after refining by the oil company, the actual profit to the retailer will likely be less than 25 cents on a gallon of $4 gasoline.
“What’s really causing more pain at the pump is rising crude oil prices, and that’s being driven by a global market where everyone is competing for crude oil,” McNab said.
Another way to look at it: the retailer’s profit on your Big Gulp and your snacks will be much greater than it is on your gallon of gasoline.
“Just like many retailers, once they kick you out, they then market a much higher volume, at a much higher margin,” McNab said.
To help curb inflation, the Federal Reserve has just announced an interest rate hike, with further hikes expected throughout the year. McNab says this could indirectly control gas prices, as it will slow consumption as well as our amount of driving.